Charles Clawson

And the Rich Get Richer

Vanguard, the leader in low-fee investment funds, announced Wednesday it will offer a price break on expenses for its long-term investors and those with big money accounts. The new "Admiral" share class could save shareholders 33% in fees.

"Our new Admiral's share class reflects the simple reality that large accounts and loyal shareholders create tremendous cost savings for all the fund shareholders," said Vanguard Chairman and Chief Executive Officer John J. Brennan. "These shareholders should receive the benefits of that cost efficiency."

Three types of investors will be eligible for the Admiral shares: those who have maintained a Vanguard fund for ten years and have a $50,000 balance; those with $150,000 in an account held for at least three years; and investors who have $250,000 or more in a fund.

Administrative fees on the Admiral class shares will be 0.12%-a 33% discount from the firm's already cheap Investor class shares, which are billed at 0.18%. (The average expense ratio for a U.S. stock fund is 1.23%, according to Morningstar.) In dollars the discount means a shareholder with a $300,000 account in the fund will save $180 per year.

Vanguard is to launch the Admiral class shares in the fourth quarter of this year for seven of its domestic index funds: the Vanguard 500; Total Market; Extended Market; Growth; Value; SmallCap; and Balanced.

The move appears calculated to head off the growing popularity of new fund-investor options, particularly exchange-traded funds (ETFs), which are considered by many to threaten the index funds market dominated by Vanguard. Consider, for instance, that the new expense rate of 0.12% will match precisely the fees of the popular S&P 500-tracking ETF commonly known as SPDRs (spiders), which trade on the Amex.

Some critics have called the plan as much a PR maneuver as truly beneficial to investors. For one thing, the conversion isn't automatic. The onus is on the investor to make the switch, to be completed through the firm's Web site. (Investors with $250,000 accounts may, in addition, switch by phone or mail.) Also, as regarding the 10-year holding period, only three of the Vanguard funds have existed for ten years-Vanguard 500, Vanguard Small-Cap Index and Vanguard Extended Market Index. Still, for the extremely rich, investing at Vanguard will be extremely cheap.